Central Bankers Moving Like Turtles, When Market Wants Hares

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Central banks are moving too slowly for some traders.

Impatient for action, investors immediately sold stocks and the euro , and moved into safe-haven bonds after the European Central Bank (explain this) failed to deliver an immediate stimulus program Thursday morning. But ECB president Mario Draghi did lay out the issues facing Europe and a plan to address them.

“I think the intent was there,” said Nomura Americas Treasury strategist George Goncalves. “It’s just a matter of circling the wagons and getting the calendar and direction of how he’s going to implement the master plan. We don’t know the details, there’s the lack of specifics and follow through given how he built up all the euphoria and anticipation of a big deal. It feels like a big dud, but there are some things suggesting they are willing to do more.”

The ECB meetingcomes on the heels of a two-day Federal Reserve meeting, which ended Wednesday with reassurance from the Fed that it will carry out a new quantitative easing plan(explain this) if needed. The lack of a new QE program, however, disappointed some in the markets who had expected the Fed to swing immediately into action, due to the slowing economy. Many Fed watchers expect the Fed to announce a new round of easing at its September meeting.

The ECB, however, is more difficult since Draghi acknowledged not all his plans have the endorsement of all council members. In particular, the Bundesbank opposes bond purchases.

He did say the ECB may undertake sizeable bond purchase, and the mechanism would be developed in the next several weeks. Draghi also said countries in need of help need to make a request.

The bailout funds - the European Stability Mechanism and the European Financial Stability Facilty (explain this) could then be used.

“Everyone’s waiting for Spain to formally request a bailout. When they formally request a bailout, then the ESM and ESFS can provide support,” said Dan Greenhaus, chief global strategist at BTIG.

Market expectations were running high after Draghi last week committed to whatever it takes to support the euro. That sparked a big rally in stocks and gains in the euro.

The Dow was off more than 150 in afternoon trading Thursday, and the eurodipped to 1.21. The move in bond yields was dramatic, with sovereigns Italy and Spain seeing yields rise dramatically. The Spanish 10-year was yielding 7.2 percent, after earlier falling to 6.6 percent. The U.S. 10-year yield fell to 1.466 form its intraday high of 1.577 percent.

“All major central banks did nothing but hold out the promise of big action next month,” said Marc Chandler, chief currency strategist at Brown Brothers Harriman. “This is a big reversal on the euro.”

“This was a big disappointment for the market because it was not immediate action,” he said.

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